David Willetts recently suggested the University of London as a model for the sector as a whole (Guardian, 10 June). Interesting. Over the last 20 years, the University of London has been broken up into smaller, ever more independent, chunks, increasingly watchful and suspicious of each other; not unlike the former Yugoslavia. For the university, one difficulty has been to regulate its great diversity under the cumbersome systems devised by successive governments. Mostly, it just gave up. A warning, rather than a model.

But Willetts has in mind the University of London external programme: the last vestige of the British empire. Until the 1950s, most UK universities were not permitted to award their own degrees, so students from around the country took University of London exams, and scripts were sent to London to mark. This has almost disappeared in the UK, but the attractions of a University of London degree certificate mean that there is still a large and lucrative overseas market.

The essence of the external system is to split syllabus design and examination from teaching, much like the school examination system. Indeed, even in the University of London, initially, the examiners were not the teachers. It is on record in my own department that "from 1842-3 till 1859 the examiners … were WT Buchan, a police magistrate (who also did duty in classics), and Rev Henry Alford, afterwards Dean of Canterbury".

The joy, for the government, of the distance learning system is that it is cheap. Students can live at home, yet graduate from a fancy institution. How popular would this be with students? I suspect that most prize the distance (from their families) over the learning. But some prefer to stay at home: currently those from lower-income families, those belonging to an orthodox religious group, and those from recent immigrant families. A danger is that developing distance-learning options will reinforce this social divide in universities.

But everything has its cost, and if introducing more distance learning is the way out of the sector's financial problems, it needs to be taken seriously. It is odd, though, that Willetts didn't mention the Open University, which already does what he recommends. Perhaps he is worried that the Open University is not a "prestige institution". So suppose it was taken over by Willetts's alma mater, Oxford, and its courses redesigned so that those studying by distance learning took the same exams, marked by the same examiners, as students attending Oxford University. Suppose, too, they received an Oxford degree certificate. Quite possibly we would regard them all as having an equally prestigious qualification.

If so, perhaps everyone would clamour to offer Oxford degrees, even those of us toiling away in London. Graduates would be differentiated only by their degree results, and everyone taking any subject would have studied the same curriculum. North Korea can only dream of such conformity.

Well, perhaps I exaggerate, and there would be market advantages in maintaining diversity, and offering something different from the mainstream. But those who want to reform the university system so that the presumed excellence at the top can be spread more widely always face a problem. A prestigious qualification is what economists call a "positional" good. Its high value depends in part on the relatively small number of people who have it. Once it is general, it is no longer prestigious.

Employers, surely, would look for some other way of differentiating candidates. Perhaps presumed quality of teaching, rather than final qualification, would become central. CVs would be scanned for place of education rather than degree-awarding authority. If so, we are almost back where we started. True, those who really excel in their exams will have an advantage, wherever they are taught. On the other hand, those from poorer families – who would have gone away to university, but didn't on the promise that they could get just as good a qualification – will feel pretty hard done by. The qualification itself will no longer be what matters, but only the elite insiders will have known this in advance.

In sum, distance learning may well be a sensible approach to cost-cutting, but hard work is needed to ensure that it doesn't increase social stratification. Or as we say in the non-distance learning world: "B?+. Come and see me in my office hour."

• Jonathan Wolff is professor of philosophy at University College London. His column appears monthly